‘Don’t rush to approve new oil projects’ – PNCR 

Sep 12, 2024 News

The Prosperity FPSO vessel

…concerned about Exxon’s high cost recovery and Guyana’s low share of profit oil     

Kaieteur News – Amid growing concerns that ExxonMobil and the Stabroek Block Co-Venturers are currently recovering more money from Guyana’s oil than they are investing in the operations, the People’s National Congress Reform said that the government should not rush to approve new projects, stating that this will continue to drive up cost-oil while denying Guyana the chance to acquire a greater share of revenues.

Kaieteur News reported on Wednesday that with the increase in oil production activities, the 75% cost recovery figure has ballooned to an eye-popping US$7.5B in the first half of 2024 alone. Meanwhile, Exxon has committed to spend just about US$500M in the block this year, according to its 2023 Annual Report. ExxonMobil affiliate ExxonMobil Guyana Limited is the operator and holds 45% interest in the Stabroek block. Hess Guyana Exploration Ltd. holds 30% interest, and CNOOC Petroleum Guyana Limited holds 25% interest.

CNOOC and Hess also committed to invest in the Stabroek Block this year, taking total equity contributions between the partners to just over US$1B. This concerning trend of cost recovery outweighing investments by the Stabroek Block partners is likely to continue as Guyanese politicians refuse to ring-fence the projects in the Stabroek Block. A ring-fencing provision would require each offshore development to pay its own cost and after the investment is repaid, would allow the country to enjoy a greater share of profits from the sector.

Weighing on the issue at a news conference earlier this week, the PNCR recalled that both Vice President Bharrat Jagdeo and President of Exxon Guyana Alistair Routledge had indicated earlier this year that Guyana’s share of revenues will increase in the very near future as the company recovers more and more of its investment. “Accordingly, in our March press conference, we had called on the government to release the company’s combined cash flow statement of its first five developments (from Liza to Uaru). We had cautioned then that “The PPP government, in its remaining time in office during this tenure, must ensure this projection materializes to the fullest extent possible… It must therefore not rush to approve new oil projects in the Stabroek Block, which would drive up cost-oil and thereby deny Guyana the chance to acquire a greater share of revenues,” the PNCR said. The party noted that the government must explain how the Guyanese people will obtain more oil revenues in the next few years from a reduction in the company’s cost of oil even as the company spends more on additional exploration, appraisal and development.

As at the end of December 2023, ExxonMobil reported that a total of US$30B was invested into the Stabroek Block operations. President of ExxonMobil Guyana, Alistair Routledge also told reporters at a media conference earlier this year that US$19B of those expenses has so far been cleared through the cost recovery mechanism.

It should be noted that the three oil projects currently producing oil, the Liza One, Liza Two, and Payara projects collectively carry a price tag of about US$19B. This means that the country could have been receiving higher profits this year from the three projects; however, in the absence of ring-fencing, Exxon will use the revenue to invest in other developments and even fund its exploration programme. Vice President Bharrat Jagdeo was asked to comment on this state of affairs during his weekly press conference last week. He was specifically asked to say whether it would be fair to conclude that Exxon’s cost recovery was exceeding its investments.

To this end, the Vice President explained, “Everything is determined by the formula, which is 75% for cost recovery (and) what is in the cost bank, so these are (the) two things. So every year, every new project that has been approved gets added to the cost bank and the 75% applies to it.”

Jagdeo therefore pointed out that the sum deducted for cost recovery is impacted by the price of the oil and the rate of production.  “If the price of oil goes up slightly, you can then recover faster…if it comes down slightly it slows down the pace of amortization of the cost bank. Secondly, if you increase production it could speed up the amortization of the cost bank so it keeps moving all the time because prices move all the time and sometimes by shipment,” he said.

Further to that, the VP noted that the approval of new projects by the government also delays the full amortization of the cost recovery. He made it clear however that this does not alter the fact that Guyana’s revenue stream in the future will grow significantly as a result of the accelerated rate of cost recovery.

• ExxonMobil, Government, Guyana, recovery, Stabroek Block Co-Venturers